A simple Brexit?

Tomorrow (28/03/2017), Theresa May will issue the UK’s article 50 notification, which officially starts the process of leaving the European Union.

This process is likely to be highly complex and granular.

As Professor Anand Menon recently wrote in the Independent:

“Even if all goes smoothly, there are good reasons to doubt the Prime Minister’s optimism. Leaving the EU involves two sets of negotiations. One – the Article 50 or “divorce” talks – is about the modalities of ensuring a smooth exit. The other will be about the nature of any future relationship between Britain and the EU.

Even assuming the other member states are willing to accede to the British desire to talk about a trade deal at the same time as we negotiate the Article 50 agreement, this might not be straightforward. Time will pose one immediate problem. Article 50 gives us two years to sign the two agreements. What with pauses for elections, for unexpected – though highly probable – crises involving the eurozone, or migration, or whatever – and, of course, for summer holidays, not to mention the period required for any deals to be ratified, we’re talking a maximum of 18 months for the negotiations themselves. Even settling the divorce in such a time frame would be impressive. Agreeing on a comprehensive trade deal would be miraculous.”[1]

Things don’t need to be so complicated however – a cliff edge could be avoided. Below we offer three simplified plans.

Option one – it ‘takes as long as it takes’

If the Prime Minister is willing to face the ire of Eurosceptics in her own party, she could ask for an extension of the Article 50 period in order to give both sides more time for negotiations.

The Article 50 text allows for an extension if: “the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.”

Since the UK is a net annual budget contributor, the other member states would be inclined to agree to an extension – especially as it would give them more time to make their own future arrangements.

During negotiations, trade will continue as normal, as we will still be an EU member state.

With the threat of a 2 year ‘cliff-edge’ removed, the UK and EU could take their time to negotiate a finely-tuned, complex and mutually beneficial deal. But politically, Mrs May may find this option impossible due to the timescale involved.

Option two: The ‘middle way’ option

As Professor Menon states, a comprehensive trade deal would be highly difficult to both negotiate and ratify in two years. However, a more basic deal might be less contentious and much quicker to pass through the relevant parliaments.

The earlier incarnation of the EU, the European Economic Community (EEC) concluded basic FTAs with Austria, Iceland, Portugal, Sweden and Switzerland in the 1970s in seven months. The EEC began negotiations with Norway on a similar FTA in February 1973, which came into force on the first of July 1973 – six months from start to finish.

With the remaining ‘left over’ time, British negotiators could reach ‘bolt-on’ agreements over additional elements concerning Services trade (based on equivalence), aviation and Customs co-operation – especially likely if the UK rejoins EFTA and agrees to use the existing EFTA court (which currently makes judgements concerning disputes concerning the EEA agreement) to resolve any future trade disputes between the EU and UK.

This agreement would be built on the bedrock of the WTO rules, and build on the World Trade Organization agreements on Technical barriers to trade, Trade facilitation, GATT, GATS and TRIPS.

Freedom of movement

The Swiss got a Free Trade agreement in 1972 that did not include freedom of movement, voluntarily signing up to a free movement agreement decades later, so there is a precedent for trade without FoM.

But in this scenario, the UK would probably wish to negotiate some type of deal on free movement; likely with fairly strict criteria like Switzerland.

“Nationals of the EU-25/EFTA member states do not require a work permit. Within 14 days upon arrival in Switzerland and before commencing work for the new employers, they have to register with the local authorities and apply for a residence permit.

[EU Nationals] must register with the local authority (commune of residence) within 14 days of entering Switzerland.

No residence permit is required for a stay of less than three months, e.g. as a tourist, if you do not work in Switzerland. But if you plan to stay for more than three months you will require a permit. Cantonal law lays down which authority is responsible. The permit is valid for the whole of Switzerland, but you must notify the communal authority of any change in where you live.

A residence permit will be issued if you have enough financial resources for yourself and your family members to ensure that you will not have to claim welfare in Switzerland; you have health and accident insurance for as long as you are to stay. You are not entitled to welfare payments in Switzerland while you are looking for a job.”

Yes, the Swiss took a long time to agree their current deals with the EU, but we would argue that this is a completely different situation – their arguments evolved organically and incrementally over time and were unprecedented, ours will be building on existing precedents.

Mrs May could return to the UK saying that a deal had been struck in the timeline she promised, the UK had stronger control over who lives within it; and that the UK was no longer directly subject to the European Court of Justice (ECJ) – which are three of her key objectives.

This option would spare Britain from the worst of the economic damage of a ‘Hard Brexit’.

Critics in Britain would probably call this a ‘Swiss-style fudge’, but its acceptability and reception with the public would likely depend on the text of the final agreement.

Option three – the Liechtenstein precedent

The UK is both a current EEA member and a former EFTA member. It should therefore be possible to make the transition to EFTA/EEA reasonably quickly and smoothly.

Liechtenstein is a member of EFTA and the European Economic Area (EEA) – it participates in the four freedoms of the Single Market, but it has been permitted opt-outs over immigration. As Vicky Ford, a Conservative MEP has said:

“If you look at a country like Liechtenstein, in the EEA, they have access to free movement of goods within the single market [but they] have an absolute cap on the number of people given residency a year – and it is only 90 people. The ability to put an upper break is a concept that has been adopted by EEA members and they have been given access to the single market.”[3]

Critics will argue that Liechtenstein has only been given its special status because of its small size. But the precedent of a special status nevertheless exists. As Stephen Booth from the Open Europe think-tank has stated, the UK could make a compelling argument for a similar opt-out, based on our particular factors such as population density:

“…in 2014 the UK’s population density was 232.8/km2 (and 413/km2 in England), while Liechtenstein’s was 266.4/km2. For context, Belgium’s and the Netherlands’ were 370.3 km2 and 500.7/km2 respectively.”[4]

Critics would argue that even if we got such a deal, we would still be subject to EU rules beyond our control and the EFTA court (which some say mirrors the ECJ) would enforce them, so we would not be ‘taking back control’.

There are four key rebuttals to this.

Firstly, Carl Baudenbacher of the EFTA court has said that his court is less intrusive than the ECJ:

“Our setup is more sovereignty friendly than the EU’s. There is no written obligation on any court of last resort to make a reference to us, and our rulings in these reference cases are strictly speaking advisory.

There is no direct effect and no primacy of EEA law, and if you do not implement an infringement judgment there is no possibility to impose a penalty payment. That shows greater flexibility. European citizenship is not, as such, part of our setup. There is a difference in that regard.”[5]

Secondly, as an EFTA/EEA member we would no longer be bound by the following EU policies:

Thirdly, the EFTA/EEA countries are consulted and have input into new EU/EEA rules and regulations (but admittedly no final vote). However in certain cases they can argue that rules are not ‘EEA-relevant’ and so they don’t need to accept them.

Fourthly, as Dr Richard North argued in ‘the Norway option’ as an EFTA/EEA member we would regain our seats at the WTO (World Trade Organisation) and other key international bodies, which would mean that we would have more influence on the global bodies than we do now (the EU has to follow the lead of these bodies when creating new rules and regulations).

In summary then, this option would allow us to:

Regain sovereignty (‘take back control’),

control immigration,

Not directly subject to the ECJ

maintain Single Market access,

regain control over our fishing waters (after negotiation and discussions with the relevant RFMOs and International Tribunal for the Law of the Sea (ITLOS).)

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These three options would be the three simplest options for Brexit. In any event, re-joining EFTA would undoubtedly be a great move for the UK.

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Rejoining EFTA Timescale:

Rejoining EFTA and the EEA would be based on the Vaduz convention and the EEA agreement. The Vaduz convention states no specific timescale:

The Convention says that any acceding state shall apply to join its existing free trade agreements:

“56(3) Any State acceding to this Convention shall apply to become a party to the free trade agreements between the Member States on the one hand and third states, unions of states or international organisations on the other.”

Many of the EFTA trade deals contain accession clauses so that any state joining EFTA accedes to them unless the third party in question specifically objects to them.

An example is in the Canada agreement:

“ARTICLE 39 Additional Parties

The Parties may invite any State to become a Party to this Agreement. The terms and conditions of the participation by the additional Party shall be the subject of an agreement between the Parties and the invited State.”

Or in the Hong Kong agreement:

Accession

“Any State becoming a Member of the European Free Trade Association may accede to this Agreement, provided that the Joint Committee approves its accession on terms and conditions to be agreed upon by the Parties. The instrument of accession shall be deposited with the Depositary.In relation to an acceding State, this Agreement shall enter into force on the first day of the third month following the deposit of its instrument of accession, or the approval of the terms of accession by the existing Parties, whichever is later.”
We believe that few of the 36 countries (if any) will object to the UK becoming party to these agreements, so most of these are a certainty.